Since the first marketing campaign, business owners have struggled with the age old question – What bottom line value did their business get from a marketing campaign? Entrepreneurs want to be sure they’re wisely investing hard earned dollars. Blindly throwing good money after bad is not a recipe for success.

Return on Investment (ROI) to the rescue!

While the term may be intimidating, the analysis is easy and practical. In fact, pbSmart™ Essentials has created a free online ROI calculator for you. This lets you focus on the business implications rather than an (eventually victorious I’m sure) tussle with your calculator. Before we head over and put it to the test, let’s cover a few of the basics.

What does ROI really tell you?

Business is about spending money to make even more money. It’s investing to make a return. ROI represents the return you make on an investment as a percentage. Let’s look at an example.

When you walk into any bank you see the current CD rates displayed. Let’s say their one year rate is 3% for a $1,000 deposit. That means at the end of one year you’ll receive $1,030 back from the bank. Your ROI is 3%. Another way to read the ROI of a bank CD; for every dollar you invest you will get $1.03 back.

Unfortunately in business the endless array of marketing options don’t come with the financial equivalent of a Nutrition Facts label. You’ll need to do your own calculations of ROI.

ROI Analysis is an easy way to objectively compare marketing campaign results.

You might be tempted to think that the campaign with the best return would be obvious. If Campaign A earns a net profit of $1,000 and Campaign B earns a net profit of $10,000, then Campaign B must be better, right?

Not necessarily.

What if you only spent $500 on Campaign A, but $14,000 on Campaign B? Suddenly Campaign B doesn’t look quite so attractive anymore. Now imagine you’ve got 10 campaigns to compare. What a headache.

ROI to the rescue. Simply open up a spreadsheet or word document and list out your 10 campaigns. Next to each one note the ROI. At a a glance you can see which marketing efforts yield the highest return, and which may need to be dropped.

What you need to calculate ROI for your marketing campaign:

Total Mail Pieces / Emails – Number of snail mail letters, postcards, parcels or emails you will send as part of the campaign

Campaign Budget – This should include printing costs, postage, and resources incurred only for the particular campaign to be analyzed.

Response Rate – The percentage of recipients who respond to the campaign. If you send out 100 postcards and get two responses your response rate is 2%.

Close Rate – The percentage of respondents who actually purchase something. (Remember the end goal is to bring in more profit.)

Revenue Per Sale – The amount of money earned for each sale made due to this campaign.

Plug in the numbers and get your proposed campaign’s estimated ROI. Any negative answers should first be reviewed for data entry errors (who hasn’t accidently hit the number 2 when reaching for 1?). If there are no errors, it’s time to revisit the decision to even pursue this campaign.

Using our earlier bank CD example, imagine if the rate posted was minus 3%. The bank is saying to you, give us $1000 and in a year we’ll give you back $997. What?! If you wouldn’t do it at the bank, you shouldn’t do it with your business.

Measure Success With Email Marketing!

Track opens and clicks, and understand what kinds of offers connect with your audience. pbSmart Connections features simple reporting tools that help you understand the success of your email marketing.

ROI – The After Party

While it’s good business to estimate the return any campaign will deliver before spending money, you still need to track the actual results. Predictions aren’t results (or Eli Manning of the NY Giants wouldn’t have two Super Bowl rings).

Review your results versus expectations. Look for ways to avoid major misses in ROI prediction. Highlight times when you spot on. ROI analysis is only as good as the information put in.

Final Thoughts

Calculating the ROI on past and future campaigns is an easy, effective tool to help you invest your marketing budget wisely. Go over and try it out the calculator. Were you surprised by the results? What changes are you considering to improve your bottom line?

http://www.pbsmartessentials.com/ Justin Amendola

This is an interesting post, Nicole. The 2012 Pitney Bowes Small Business Marketing Survey found that 80% of small businesses surveyed did not measure the business impact of their direct mail campaigns. 73% did not measure the impact of their email marketing campaigns.

Those are eye opening figures and certainly point to a need for more insight on ROI measurement. I think your post offers a great start and, hopefully, the ROI Calculator provides a quick resource to help businesses determine what needs to happen to justify their marketing investment.

http://www.thewordchef.com/ Tea Silvestre, aka Word Chef

I was about to say, “…are you keeping track of this stuff at all?” It’s easy enough to count emails sent vs. opened, or even postcards mailed, but when it comes to things like advertising (even small ads like that Facebook post you promoted) need to be tracked and monitored. This is a great post, Nicole and a great reminder to MEASURE your efforts. I’ll be sharing with my network.

http://www.thenumberswhisperer.com/ Nicole Fende

Justin I just find it amazing that businesses don’t track results. Especially now with your easy to use calculator it’s so simple. Then you know if it’s paying off or simply throwing good money after bad.

http://www.marketingoutfield.com/ Dave Hubbard

I was surprised that only 40% of the businesses use email for marketing and business development and only 38% indicated that they us transactional mail for promotional uses.

That means that 60% of the businesses could see a quick increase in ROI just by adding relevant marketing information to their emails and transactional mail.

In addition, by sending emails before and after sending their direct mail, the ROI of their direct mail would increase.

The handy ROI calculator would be useful in helping them quantify their higher returns

http://www.pbsmartessentials.com/ Justin Amendola

Great points, Dave. I think many small businesses don’t realize how simple it is to add marketing messages to transactional mail and invoices. I was just doing some exploration in Quickbooks last week and found that there’s an ability to add “long text” to standard invoice templates.

In addition to warranty or other information, why not add a monthly promotion or service renewal message? That’s a great way to get your marketing message into a mail piece with darn near a 100-percent open rate.

There’s also an incremental cost of practically zero. For businesses that want a bit more “pizzazz,” why not print a small postcard or insert that can go into invoices without pushing them over the USPS 1oz weight limit?

That’s where the ROI Calculator would come in handy in determining the incremental printing costs versus how many customers would need to buy/renew to make the cost worthwhile.

http://www.thenumberswhisperer.com/ Nicole Fende

@Dave_Hubbard:disqus the only stat that amazes me even more is how many small businesses don’t even have a website. Email used well can absolutely add a profitable boost to your bottom line!

ROI is a slippery little beast… we like the big numbers but sometimes they can be deceiving. I tested a direct mail campaign (once, only once…) and the response rate was one. One single response. But it turned into a big, year-long project. In the end, the expense was more than worth the return even though I don’t have any bragging numbers to share.

http://www.pbsmartessentials.com/ Justin Amendola

Great point, Carol Lynn. This is one of my biggest talking points when coaching small business owners on the use of direct mail. It’s a scale channel where typical response rates can hover in the 0.5% to 2% range – especially for beginners. You’re really hitting it out of the park when you get above that.

If a small business has a marketing list of 500, then it’s very reasonable to only expect a handful of potential responses. When your product is a high-value consulting service, then a handful of responses can turn into a big ROI. When you sell retail or food goods, then positive ROI becomes much tougher prove at that volume.

It often becomes about the expected customer lifetime value of each new respondent and that involves a lot more measurement and revenue attribution over a longer period. All the more reason why it’s easier to just not measure at all or to write the first campaign off as a “loser.”

Context is very important when planning, executing and measuring something like a direct mail campaign.

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